The Growth of Renewables Portfolio Standards (RPS)

The Growth of Renewables Portfolio Standards (RPS)

Renewables portfolio standards (RPS) typically require that a certain percentage of a retail electricity supplier's sales or new generating capacity be derived from renewable resources and are a growing component of the electricity world. According to the Database of State Incentives for Renewables & Efficiency (DSIRE), Twenty-nine states and the District of Columbia have adopted mandatory renewables portfolio standards while an additional six states have renewable energy goals.

States which have adopted RPS policies have done so for a variety of reasons, including diversification of energy sources, reduction of natural gas demand, new job creation, and environmental benefits. This particular policy instrument is advantageous because, if properly implemented, it provides market demand for renewable technologies and will lead to a predetermined amount of renewable energy generation by an established date. In addition, it contains market-based elements that encourage the implementation of the least-cost form of renewable generation necessary to meet the standard.

One of the most important aspects of RPS is the treatment of what have generally come to be called “renewable energy credits” or “RECs”. A REC represents the “non-power attributes” of electricity generated by a renewable resource and delivered into the grid, and can be bought and sold along with or separately from the electricity itself. These credits can be bought and sold among operators of renewable resources, utilities and competitive energy suppliers in an effort to make compliance with RPSs less expensive and more efficient.

Timing and implementation of policies around RPS differ, with some states enacting aggressive schedules that would have renewables, in effect, meeting all new demand over the next 10 to 15 years. Other states have chosen more gradual approaches.

About three weeks ago, the California Public Utilities Commission set a policy for tradable renewable energy credits (TRECs) that will facilitate RPS compliance by permitting the use of TRECs for compliance, replacing the current requirement that RPS compliance come from bundled energy and RECs. While this decision should provide some additional flexibility in meeting RPS in California, it is important to keep in mind that the underlying legislation still requires that renewable energy used for RPS compliance must be delivered to California, so delivery protocols implemented by the California Energy Commission will continue to be utilized.